Posts Tagged ‘GDP growth’

It has taken a while coming, but the drop in oil price since mid-2014 is finally making its way into the Indian economy. Fuel consumption is growing at 10%. India has now passed Japan and is now the third largest oil consumer. Soon India will pass even China for energy consumption growth. Refineries which were intended for the export of oil have shifted to production for domestic consumption. Car sales which grew by 6% in the last year are now expected to be 12% in the next fiscal year (April – March).

Underpinned by annual economic growth of 7-8 per cent, India’s fuel demand is seen as a key oil price support over 2016-2017, eating into a supply overhang that has pulled down global crude as much as 70 percent since mid-2014.

India has already pipped Japan as the world’s third-largest oil consumer. By 2040, India will have more than doubled its current oil use to 10 million barrels per day (bpd), according to the International Energy Agency (IEA), about on par with China’s consumption last year.

This roar of motor – as well as power and household – fuel use means some refineries initially planned for exports, such as the 300,000 bpd Paradip refinery on India’s east coast, have been flipped to serve domestic oil demand. …… Reflecting India’s rising importance as a buyer, Igor Sechin, chief executive of the world’s biggest listed oil company Rosneft, was in New Delhi this week to sign several deals with Indian companies such as IOC, Oil India Ltd and Bharat PetroResources Ltd.

…. Over April-February – the first 11 months of India’s current fiscal year – fuel demand rose 10 per cent to about 170 million tonnes (4 million bpd), according to a report this week by the oil ministry’s Petroleum Planning and Analysis Cell (PPAC).

For the next fiscal year through March 2017, the PPAC has forecast fuel demand growth at 7.3 per cent. …. India plans to spend Rs 97,000 crore ($14 billion) in 2016-2017 on expanding and improving the country’s road network, which at 4.7 million km is already vying with China as the world’s second-longest after the United States, although highways make up less than 2 per cent of that figure.

A 23.55 per cent increase in the salaries, allowances and pensions of millions of government employees later this year is also expected to shore up consumer spending, boosting purchases of cars and motorcycles. Sales of passenger cars and utility vehicles in India are expected to grow by as much as 12 per cent in the next fiscal year, up from an estimated 6 percent this year. That translates to around 230,000 new passenger vehicles hitting the roads each month.

The main impact has been on gasoline demand, which the PPAC expects to grow to 24.2 million tonnes (560,000 bpd) by next year, up more than 12 per cent from 21.5 million tonnes estimated for this fiscal year. “Gasoline demand has been growing in double digits and we expect this to continue as it depends on sales of two-wheelers and cars,” said Indian Oil Corp’s Singh.

Other fuels are seeing growth as well, and for similar reasons. To meet rising demand, state refiners are planning a 1.2 million bpd plant on the country’s west coast, adding to current overall capacity of 4.6 million bpd, although a fixed timeline has not been set.

I expect India and China to be key contributors to the recovery of the global economy and

Historically – though it is a relatively crude generalisation – low oil price has usually given – or coincided with – consumer-led growth and stability.

…. The Global Innovation Index and a related report, which were published this morning by Cornell University, INSEAD, a business school, and the World Intellectual Property Organisation. The ranking of 140 countries and economies around the world, which are scored using 79 indicators, is not surprising: Switzerland, Britain, Sweden, the Netherlands and America lead the pack. But the authors also look at their data from other angles, for instance how countries do relative to their economic development and the quality of innovation (measured by indicators such as university rankings). In both cases the results are more remarkable. The chart above shows that in innovation many countries in Africa punch above their economic weight. And the chart below indicates that, even though China is now churning out a lot of patents, it is still way behind America and other rich countries when it comes to innovation quality.

India since the start of this year has been using a new method of calculating GDP and GDP growth. Basically 3 changes have been made.

the base year has been changed from 2004-05 to now be 2011-12

a “cost of production” based method has been changed to be a “market value” based method, and

a database of just 5,000 corporate entities has been expanded to include over 500,000 entities

It is the use of “market value” rather than cost based data which is the biggest change and actually brings India more into line with the methods used by most other countries. Cost based (bottom up) analyses are always historical in nature, somewhat out-of-date by the time the data are used, and under-estimate real value. “Market value” based data should be more current but have a subjective element and can overestimate “value” especially in times of high inflation. The subjective element can work in both directions but brings in an element of “expectation” into what should be a look backwards. For example a calculation of GDP growth for a quarter consists of “value now” minus “value 3 months ago”. A “value now” estimation in times of high growth will overestimate and in hard times will underestimate. On the other hand a cost-based, bottom-up estimation of value will always lag and underestimate real value.

There is no “correct” method. The real question is what the “value now” is to be compared with. To compare with the growth in China or some other country it is better that the methodologies used be the same. Of course, differences of value (growth) will be different using the different methodologies. The “new” method at least uses a large enough database to be more representative of the constituent parts of the Indian economy as it actually is now.

Hindustan Times: All of this means the new method for computing GDP, which takes 2011-12 (when GDP grew 6.7%) as the base year, has bumped up India’s estimates of growth. In 2012-13, the new formula estimates growth at 5.1% (under the old one, it was 4.5%); in 2013-14, it is 6.9% (the old estimate was 4.7%); and, as we all know by the high-decibel crowing that came in its wake, in 2014-15, it was 7.3%.

There’s obviously no ‘old data’ for 2014-15 but estimates suggest that the old method may have pegged growth at 6.3-6.8%. All of this may mean something else too.

Last week, FM Arun Jaitley told US investors that India could attain double-digit growth soon. He wasn’t kidding. Because what’s 10% now could’ve been just 8% before!

For the April-June quarter Indian GDP growth is estimated to have been 7.4% compared to the 7.5% in the preceding quarter (calculated by the new method). With the old method the number would probably have been about 5.8 – 6.2 %. A growth of 7.5% is somewhat flattering of the real mood in Indian industry that I can discern.

I have a suspicion that at 7.5% the growth figures are a little too high and contain an overly optimistic “market value”. It could be that there is an in-built “optimism” of the politicians and bureaucrats, rather than of industry, which is skewing the “value now”. “Reality”, if such a thing exists, lies somewhere in-between the values calculated by the two methodologies.

I have faith in Japanese resilience and will still stick my neck out and stay with my forecast that the Japanese economy will become a global “driver” through 2012 and 2013.

Japanese Gross Domestic Product grew by 1.5 % over the 3rd quarter (July – September) representing an annualized growth rate of 6 percent. This is the fastest rate of growth for 18 months. The Cabinet Office said today in Tokyo that at 543 trillion yen ($7 trillion), the economic output was back to levels last seen before the March 11th Great Tohoku quake and tsunami.

The growth seems to have been led by exports rather than the domestic impetus measures to recover from the earthquake or the subsequent spending on rebuilding infrastructure. These probably need 2 more quarters to kick-in but that means that this growth is still vulnerable to current global weaknesses.

However the optimistic “glass half full” view would be that Japanese exports have grown mainly to Asia and the earthquake rebound has yet to come. Moreover this has happened in spite of a very high Yen. Any recovery in Europe and N. America would be a further boost to an economy which is large enough to then act as a global motor.

The rebound underscores the speed at which Japanese industry has been able to get back on its feet after the March 11 earthquake and tsunami, rebuilding factories and re-establishing supply chains severed by the destruction.

Exports jumped 6.2 percent as manufacturers got production back on track. Private consumption, which accounts for almost two-thirds of Japan’s economy, grew 1 percent, helped by a rebound in consumer sentiment and replacement demand in the tsunami zone.

Still, policy makers and economists also worry that the punishingly strong yen of recent months as well as weak growth in major trading partners, like the United States and China, will take a toll on Japanese exports. The crisis at the Fukushima Daiichi nuclear plant, meanwhile, has thrown the country’s energy policy into disarray and cast a pall over Japan’s recovery.

“India’s macroeconomic performance has been vigorous, with industrial production at a two-year high. Leading indicators — the production manufacturing index and measures of business and consumer confidence — continue to point up,” the IMF said.

“Growth is projected at 9.7 per cent in 2010 and 8.4 per cent in 2011, led increasingly by domestic demand. Robust corporate profits and favorable external financing will encourage investment,” it said.

“Recent activity (10 per cent year-over year growth in real GDP at market prices in the second quarter) was driven largely by investment and the contribution from net exports is projected to turn negative in 2011 as the strength in investment further boosts imports,” the IMF said.

But in spite of the IMF’s caveat on net exports turning down, I think the trickle-down effects of a good monsoon may have been under-estimated. Agricultural growth which was low should pick up and domestic demand will ensure the industrial growth continues. For the Fiscal Year 2010/11 (till 31st March 2011) I fully expect that the GDP will grow by just over 11%.

The establishing La Niña probably helped the monsoon somewhat.

A “moderate to strong” La Niña, which appeared in July, was now well estabished according to the WMO, and forecasts showed “rather a strengthening of this La Niña episode for the next four to six months.” La Niña is characterised by unusually cool ocean temperatures in the eastern equatorial Pacific and has been associated with strong rainfall in Asia and Australia, bitter cold snaps in North America, as well as drought in South America.